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Tuesday, August 10, 2010

Five years ago the block barbecue discussion du jour was how much the house prices on the block had risen and how everybody was going to be rich. Today, assuming your neighborhood isn't sprinkled with foreclosures, the discussion has morphed into whether we will keep our jobs and how low yields are on our investments. So that you can keep up with the discussion and aren't forced into playing guitar hero in the basement with the kids, here is a listing of yields on various instruments along with some associated exchange traded funds. Nothing here is recommended. Some stuff is risky. In fact, a basic tenet of investing is that, if you are getting extra yield, you are taking on extra risk. The auction rate securities crowd never really got this. See your advisor or get an MBA before touching these investments! The framework here was inspired by Kiplinger's "Pocket Extra Income" p. 31 in the September issue. Real Estate Investment Trusts 8.21% REM Utility Stocks 4.14% XLU Dividend-Paying U.S. Stocks 3.64% DVY 10 year U.S. Treasury Note 2.81% Money Market Funds .04% High Yield Corporate Bonds 10.8% JNKForeign Bonds 3.7% (yield reported by Kiplingers) IBND Emerging-Market Bonds 5.15% EMB Investment Grade Corporate Bonds 5.44% LQD Investment Grade Municipal Bonds 3.6% MUB

8 comments:

Hey Robert, I like that line "...if you are getting extra yield you are taking on extra risk." Totally agree. I figure if I stay with consistent, dividend-payers like Canadian banks, utilities and telcos; yield will remain comparatively low to high-flyers but very, very steady for me.

On the topic, what is "extra yield" in your opinion? Would you agree this is a floating range that moves with the economic environment of the day? A 5% yield could be considered risker in some climates, than in others.

One man's risk is another man's prudent bet. If the economy continues to improve junk bonds could be a good bet while treasuries could get creamed with rising rates. No one knows what the future holds so place your bets, or just buy a reasonable mix of the different classes of income securities.

re: Financial cents "Extra Yield does change with the economic environment. At one time the 10 year Treasury note yield was 12%. Guess what? Nobody wanted it. That was , of course, in the days of high inflation. The "real yield" is not nearly as volatile.Re: Grouch I go with the last part. Diversify - you never know.

re:David When it comes to guitar hero I watch. My excuse is that I don't know any of the songs anymore.:)But the good news is I strum the real thing a little bit-stress on "...a little".re:Shawn Good point on the non-investment grade fund. My experience has been that junk bonds outperform just about all the time. If you can avoid them when the economy is going to hell in a hand basket (like'08) you tend to do well. In today's environment if more evidence comes in that we are going into a double dip then avoid or lighten up on the non-investment grade stuff.

Hi Robert, Your post is timely as I am reinputting (is that a word) my personal portfolio Quicken data due to a (annoying) 2010 upgrade glitch. It is causing me to look at each & every holding. The low yields on cash REALLLY SMACKED ME. I appreciate the concise and timely list.

re Barb: Low cash yields are really a drag on portfolios. Unfortunately they are forcing people, as you well know, to take on more risk than they should. It seems to be a recurring theme in today's capital markets. For those interested in yield, Master Limited Partnerships are also something to consider although bought individually they result in some tricky accounting/paperwork.

I've managed investment assets for institutions and individuals for more than 30 years and have seen first hand the egregious fees charged for sub par performance. My mission is to show individuals how to avoid these fees and capture the long term performance of the markets. In doing this I consult on an hourly basis, manage assets for a short period to get investors set up to manage on their own and manage assets outright at less than half the going rate.
I am a fee only registered investment advisor. I receive no commissions or any type of payment other than what my clients pay me.